It’s back to the Wal, but will the deal work?

The return of Wal King already has that “done-deal” feel about it. Photo: Jon Reid

FRANCISCO Pizarro won control of the Incan empire in 1523 by tricking the emperor Atahualpa into bringing $100 million in gold down to the main square in Cuzco as a ransom. The ransom was held up as a friendly deal. But once Pizarro had the gold, he had the Incan leader arrested on trumped-up charges, then executed.

The Spanish might be more civilised these days but you have to hand it to Leighton’s major shareholders, the lads from Actividades de Construccion y Servicios (ACS).

What a cunning plot these chicos have hatched to bring back Wal King, enfeeble the stock price and subjugate the Leighton construction empire on the cheap. Pure gold – unless the whole caper is merely a flight of ego on King’s part. As one of the nation’s best-paid chief executives over the past 20 years, he hardly needs the money.

The question is, will the faithful investment tribes and their emissaries on the company’s board put up a fight? Or will they capitulate to this band of neo-conquistadors? At stake is control of an $8 billion construction and engineering empire stretching from the Middle East to Hong Kong, one of Australia’s most successful companies.

The return of King already has that “done-deal” feel about it. Pestered by reporters this week, King’s successor and chief executive, David Stewart, said: “I don’t have a problem with Wal … if the board wants to put Wal back on the board, then we will get on with life. I can’t confirm or otherwise what is going to happen.”

Stewart is in a tricky place. He owes his job and a good deal of his wealth to King. ACS controls 55 per cent of the stock, via its holding in German construction group Hochtief. Stewart can hardly stand up to that. His own job is on the line.

The ACS line appears to be that King can stabilise Leighton and halt a string of executive departures after the group booked massive write-downs on problem projects and launched an emergency capital raising last month.

To some that may sound logical, but only if you ignore the fact that Leighton’s woes are all a direct result of King’s reign. Moreover, a handful of departures are de rigueur in the aftermath of a two-decade executive reign. There are always losers in an internal succession battle.

Given that King was chief executive for 23 years and has pulled $150 million out of Leighton in cash over the years, his mooted $5 million “succession bonus” is ugly corporate largesse. That the succession has been anything but “orderly” renders it an insult to shareholders – if it were paid, that is. Word is that the bonus is yet to be handed over.

King sold nearly all his Leighton shares in the second half of 2010. Between July 1, 2003, and December 31, 2010, he took home $93.82 million. That includes a $4.9 million three-year restraint but excludes the transition bonus and any bonus for 2011. Options vested were worth $9.421 million.

Apart from its sheer magnitude, the most notable thing about King’s remuneration has been its “cashness”. Under his stewardship, until the financial crisis at least, this had been one of the market’s best-performing stocks – two decades of high returns.

But King, ever cautious, took most of his pay in cash rather than shares. In relative terms, he never had much of a holding in the company, and whenever he could exercise executive options, he did so pretty quickly. And when the end came, marred by big write-downs and a share-price plunge, the pay still flowed. King is hardly alone in this but there was no obligation to share in shareholder losses, only the upside from the days of yore.

Another less-recognised aspect of his pay might be deemed the “Wal effect”. Such was the size of King’s pay that once the rules changed in the early 1990s to force disclosure of executive remuneration, the dam burst. And it gushed with particular force in the engineering and construction sector – with inflated pay at UGL, Transfield and, of course, the Downer crew – because everyone else in the sector could point to some reason, on some measure, why they should be paid more. Look at Wal. He got one of these you-beaut bonuses for exceeding some nebulous performance benchmark, we’ve got to have one of these. Ship it in.

Meanwhile, some independents on the Leighton board are said to be ropeable. We will know shortly whether ACS is plotting to destabilise Leighton, or how far it is prepared to let things go. Flight of ego or conspiracy theory?

ACS, with its power over Hochtief’s 55 per cent stake, can call a halt to things any day. As can King, although he seems committed now.

It is a pity. I covered Leighton for while in the early 1990s when the group was in disarray, desperately attempting to recover from an abortive expansion, racked by high debts with its share price languishing in the cents range.

The young Wal King at the helm turned things around, his well-known charm winning a slather of projects and his uncanny business instincts driving Leighton to the top of the engineering and construction game in Australia.

From an investment perspective, the moral of the story is sell stocks no matter how successful historically, when a long chief executive’s reign comes to an end. For then the write-downs come as well.

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